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Springs Global 'optimistic' about U.S. business in 2Q and ahead

Expects to debut 2 new brands

Cecile Corral, Kara Cox -- Home Textiles Today, August 16, 2010

Montes Claros, Brazil -- Even though sales and margins "disappointed a little bit" as they were impacted by price increases from its suppliers and vendors, Springs Global is keen on its U.S. division as its current roster of brands in the marketplace are showing encouraging performances - enough so that the company expects to unveil at least two new ones "soon."

Josue Gomes de Silva, chairman and ceo, told investors and analysts during the company's second quarter earnings call today that Springs Global's "suffering" from recent price increases from its U.S.-based suppliers and vendors is only "short term."

Instead, he turned his attentions to strong points in the quarter and ahead: its brands.

"We very optimistic about the growth of our sales in our branded product division [in the U.S.]," he said, citing Springmaid and the Cindy Crawford programs in particular as "[continuing] to perform very well." He reminded of recent proof of the success of the latter brand, which debuted in J. C. Penney last fall: the home furnishings division 2009 JCP Supplier Summit Award that Springs received in May.

"We are very pleased with that," Gomes da Silva said.

Springmaid launched in April in 1,600 Target stores.

Another recent feather in its U.S. business cap was the launch of the Diane Von Furstenberg brand in home, which he said "has been very well received by the market," not only by retailers like Bloomingdale's and other high-end department stores but also by the press and in Europe.

"Our company showed an increased ability to design and source and display a collection of not only bed and bath but also house wares in a great way, and we are very excited about this possibility," Gomes da Silva said. "We really believe that with our new brands and new team put in place -- a very creative team, we are able to bring excitement [in the U.S.]," he continued. "We expect things to revert in the U.S."

Encouraged by improvements in the U.S. thus far, Spring Global plans to introduce "at least two new brands soon," Gomes da Silva said. "We are very excited with the future. Hence, we move along with the creation of new brands."

Second quarter results for Spring Global called for consolidated gross sales of $406.717 million in the second quarter of 2010 were 1.2% lower than in the year-ago period. (Note: HTT is using a simple conversion rate under which $1 equals about 1.8 Reais. U.S. dollars figures here do not account for value fluctuations across the year.)

In the second quarter, net sales decreased by 3.9%, reflecting a 5.3% decrease in sales volume in tons and a 1.5% increase in the average price. Year to date, net sales decreased by 4.6% to $686.5 billion from $72 billion in the first half of 2009, despite the 1.1% increase in sales volume.

Gross margin increased by 3.0 percentage points to 15.7% from 12.7% in the second quarter of 2009, and gross profit increased by 19.5% versus last year.

Brazil continues to be Springs Global's heavyweight business segment.

"The Brazilian market continues to be very strong, and we are very positive on our results in Brazil," Gomes da Silva said.

He added that the company's bedding and bath operations in Brazil are growing as is the retail segment.

In the fashion bedding segment, a quarterly net sales decrease of 9.5% to $135.9 million from $150.1 million in the 2009 second quarter reflects a 13.4% decrease in sales volume in tons and a 4.5% increase in the average price, the company noted. Year to date, category net sales decreased by 13.9% to $266.1 million from $309 million in 2009, reflecting a 10.3% decrease in sales volume in tons and a 4.0% decrease in the average price.

The company said that even though there was an increase in fashion bedding sales in Brazil, "it was not enough to offset the reduction in sales in the North American market." The 4.5% increase in the average price in the second quarter of 2010 is primarily due to the higher percentage of sales in Brazil in the total sales of the company. The 4.0% decrease in the average price in the first half of 2010 is mostly due to the 17.5% appreciation of the Brazilian Real on the conversion of its U.S. Dollar-denominated sales into Reais, which was partially offset by improved mix.

In the bath segment, net sales decrease of 4.3% to $69.0 million from $72.0 million in the second quarter of 2009, reflecting a 1.7% increase in sales volume in tons and a 5.8% decrease in the average price. First-half net sales in bath decreased by 4.6% to $69 million from $150 million, reflecting a 10.1% increase in sales volume in tons and a 13.4% decrease in the average price. The increase in sales volume in tons is primarily due to the sales growth in the domestic market. The decrease in the average price in the second quarter and first half of 2010 is primarily due to a 12.4% appreciation of the Brazilian Real on the conversion of its U.S. Dollar-denominated sales into Reais in the second quarter of 2010 and 17.5% in the first semester of 2010.

Net sales in the utility bedding segment decreased by 26.2% to $39.7 million from $53.8 million in the second quarter of 2009, reflecting a 14.0% decrease in sales volume in tons and a 14.2% decrease in the average price, the company said. Year to date, net sales for the category decreased by 30.6% to $77.4 million from $111.4 million in 2009, reflecting a 14.5% decrease in sales volume in tons and an 18.8% decrease in the average price.

"This decrease in sales volume in tons is primarily due to the sales reduction in the North American market," the company noted. "The decrease in the average price in the second quarter and first semester of 2010 is primarily due to the appreciation of the Brazilian Real."

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